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(“Hot Topic” Or the “Company”) Is a Specialty Retailer of Apparel, Accessories, Music and Gift Items Both Online and in Retail Stores

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(“Hot Topic” Or the “Company”) Is a Specialty Retailer of Apparel, Accessories, Music and Gift Items Both Online and in Retail Stores The History of Hot Topic, Inc. Hot Topic, Inc. (“Hot Topic” or the “Company”) is a specialty retailer of apparel, accessories, music and gift items both online and in retail stores. The Company was founded in 1989 by Orv Madden whose vision for the Company was to serve “an undiscovered market in music related t-shirts and apparel that traditional mall-based retailers were ignoring” (FundingUniverse). Before starting Hot Topic, Madden had been working for many years in the retail industry and achieving much success. At one point in his career before founding the Company, Madden held the position of Vice-President of the Federated Department Stores‟ Children‟s Place and Accessory Place Divisions. It was Madden‟s track record of retail experience that gave him the industry knowledge and skills needed to drive Hot Topic to eventually become the leading national chain that “caters exclusively to the „alternative‟ lifestyle trends‟” (Funding Universe). However, it was his love for contemporary music that inspired him to create this niche business and allowed him to understand the market dynamics behind it. When the right opportunity came in the 1980‟s, the emergence of MTV; Madden quickly seized it. During this time, Madden noticed something about the stores that solid music and influenced clothing and accessories: they were purely small and overlooked. Madden saw an opportunity to pioneer this “alternative lifestyle” clothing to malls and outlets and eventually, to a national level. Taking advantage of the increasing popularity of MTV and music amongst teenagers, Madden took advantage of this trend and opened the first Hot Topic store in Montclair, California. Madden was relentless in achieving the ultimate goal of scaling Hot Topic to a national level and gaining presence in upscale malls. His unyielding desire was clearly reflected in the Company‟s ability to quickly brake even within its first year. Within the next decade, Madden raised over $11 million dollars from private investors and rapidly expanded Hot Topic stores all around the country. By the mid 1990‟s, every Hot Topic store was profitable. From 1995 to 1997, Madden continued to accelerate the expansion of the number of product offerings available at Hot Topic stores. Also during this time, a slew of incentives were created to motivate the Company‟s employees to generate cool products. Hot Topic employees were encouraged and allowed to attend concerts and all-night raves on the terms that they had to create a „fashion report‟ afterwards. In one case, an employee was inspired by a night of partying to create jeans that store glow sticks—a product that rapidly became popular. The meteoric rise of Hot Topic hit another milestone in 1996 when the Company went public, opening at $18 a share. At the time, sales were over $44 million and there were over 80 stores around the country. The initial public offering generated about $24 million for the Company. One year later, Hot Topic‟s stock price had nearly doubled. In 1997, Hot Topic had expanded to 128 stores and in addition, created its own label, called Morbid. Morbid caught on quickly—making up over 20 percent of the company‟s revenue. Hot Topic continued to add on more products and also partnerships with major distributors such as Sony Music and Winterland. In 1998, sales skyrocketed once again as the popularity of the show “South Park,” attracted more consumers to buy the “South Park” inspired clothing offered by Hot Topic—driving a 62 percent increase in revenue from the year before. In 2001, Hot Topic opened up a new line of stores called Torrid, which is targeted at plus-sized women. The stores feature many major brands such as Baby Phat and Apple Bottoms. Torrid aims to provide fashionable and trendy clothes for plus-size women without sacrificing comfort. In 2008, Hot Topic opened up a new store called Stockhound, which is an internet based retailer and social networking music site. Stockhound.com also provided exclusive music, videos, and interviews as well. However, the website failed to gain enough traction and as a result, it was shut down last year. In the last few years, Hot Topic has continued to open up new stores around the country--achieving Madden‟s dream of scaling Hot Topic‟s store to a national level. The year 2010 marked another milestone for Hot Topic as it reached international presence by opening two stores in Ontario, Canada. The Business Model of Hot Topic, Inc. The Company has undergone some changes over the years. While Hot Topic still sells music and pop culture-themed items, the Company has expanded its product offerings to other markets as well. For example, Torrid, a subsidiary of Hot Topic, focuses on top fashion for young, plus-sized women. Continuing on, the company has spread its presence beyond the US, opening stores in Puerto Rico as well as in Canada. In recent years, Hot Topic has established an online presence as well. Promotion When Madden created the Company, he stated, “Our target consumers are kids 12 to 22 years old. We want those kids to be totally overwhelmed with our merchandise mix when they first walk in the door.” And this goal has been achieved ever since the opening of the store. The unique aspects of the stores: the free attitude and the ever-changing style that complies with the pop culture is what remains attractive to customers and helps keep loyal ones. The latest and most “hip” clothing could always be found at a Hot Topic store. The way the Company maintains the current trends in the store is with a strategy to never order a shipment more than 60 days prior to the debut. This preserves the image of items “almost literally jumping from MTV to the consumers‟ wardrobe.” It‟s with this image that the Company “aimed at nothing less than gaining the loyalty of every popular-music lover under the age of 25” (FundingUniversity). Product Hot Topic is the only company to cater exclusively to the “alternative” wave brought about by this generation of teenagers. The Company sells all sorts of attire including shirts, jeans, pants, jackets, bras, shoes, and even a clothing line for kids and more. They also sell music and accessories including, but not limited to: body jewelry, artificial tattoos, multi-hued hair-dye, and unisex, music-influenced apparel. The Company has generated and sells products from other labels such as Kik Girl, Taffy, Caffeine, Lip Service, and Porn Star. And also launched Torrid, a store for Plus-sized women, which carries brands such as Baby Phat, House of Dereon, Dickies, Z. Cavaricci and Apple Bottoms (HotTopic.com) Price The Company believes its products to be “valued at the lower of average cost or market, on a weighted average cost basis, using the retail method” (10-K). While staying hip, once items get a little more outdated, the company puts them on Clearance Sales, usually Consisting of Buy One- Get One (BOGO) promotions. In general, most apparel can be bought at prices between $15 and $35, with some exceptions on both sides (one being boots that cost up to $170.) While other accessories can range from Two dollar Bracelets, to $90 Headphones (HotTopic.com) Place All of the Company‟s stores are synchronized in appearance. Being in an indoor mall, they were made to look like a mix between a night-club and a teenage fun house. They all have music playing with low-lit, “gothic-style” lighting in a 1,500 square foot space. The Company also hit the web in 1997 and ships product to about 100 countries. In 2008, they launched ShockHound, an “online retailer and social networking music site.” Which contained music downloads, interviews and other exclusive content, but is now shut down. Sources Hot Topic. (2011). Hot Topic Website. 9/19/2011. < http://www.hottopic.com> FundingUniverse. (2000, June). Company History & Profile of Hot Topic, Inc. 9/19/2011. <http://www.fundinguniverse.com> SEC, (2011, February). 10-K form for fiscal Jan, 29, 2011. 9/19/2011. < http://www.sec.gov/> Yahoo Finance. (2011) Key statistics of Hot Topic, Inc. 9/19/2011. <http://finance.yahoo.com> .
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